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tv   Squawk Box  CNBC  February 5, 2013 6:00am-9:00am EST

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good morning. today's top story, let's make a deal. michael dell posts a finalizing and perhaps officially announcing its $23 billion transaction to take his computer company private. it could happen while we're here on squawk. also, calls to the white house. president obama will be meeting with a dozen ceos today. and the bulls trying to battle back. it's been a good year, but now
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stocks coming off their worst losses this year. it's february 5th, 2013 and squawk begins right now. good morning, everybody. ike becky quick along with andrew ross sorkin. joe kernen is off today so we are again joined by steve liesman. also at the table with us this morning, our guest host is andy surel. andrew just talked about the markets. stocks ending at session lows yesterday. in fact, all ten s&p sectors closed lower. yet the bulls betting this is nothing more than a bull pac. but we will have a number of powerful investors for their thoughts throughout yao the morning. jim o'neill will join us in just a few minutes. then in the next half hour, the man charged with making sdigs for how blackrock invests more than $1 trillion, the firm's
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chief investment strategist, russ koesterich. nouriel roubini will be joining us and we're going to ask him for his current view of the world. in the following hour, buy and hold is the name of his game, barons capital ceo ron baron will be our special guess. he's been talking to us about how great of an opportunity stocks have been. we'll see if he's still feeling that optimistic now that stocks have reached 14,000 or close to it. how majority leader eric cantor is set to address a major policy issue today. the goal here is trying to rebrand the gop. moving on, before he makes his speech at aee, he will join squawk with a preview. and in squawk sports news, the super bowl champion ravens will get a hero's welcome today with a parade in their hometown of baltimore.
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everyone is still talking about the power outage of the superdome during the game. this morning, we will talk to a moon who was in the stands on sunday when the lights went out. he also happens to be the ceo of nntergy. obviously, a lot to talk about today. but before we do get started, let's head over to steve liesman. he has the morning's top stories. hey, steve. >> if i could get your ticket standing in the cold there. a deal to take dell private could come as soon as today. the computermaker moving close the a buyout with price negotiations narrowing to 13.50 to 13.75 a share. it would be the biggest leveraged buyout since the financial crisis. the u.s. government launching a civil lawsuit against standard & poors and mcgraw-hill over mortgage ratings. this is the first federal enforcement action against a credit rating agencies over alleged behavior tied more to
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the crisis. we'll talk more about the story and the implications with jacob frankel as 6:30 eastern. and there's more news for boeing. the company has asked the faa for permission to do test flights. this suggests boeing has found solutions that led to the grounding of the entire fleet last month. the transportation agency says it's unclear whether battery, chemistry or an electrical issue caused a main battery on a plane owned by nippon airlines last month. investigators said today they may widen their probe on other components on the aircraft. >> thank you, mr. professor. yum brands is warning it is expecting 2013 warnings to shrink as it struggled to manage a food safety scare in china. remember i made that joke about cats. we'll leave that alone.
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also, toyota now raising its annual profit guidance banking on stronger sales in the u.s. market and a boochtd from a weaker yen. but the automaker says it will not build any new factories in three years despite product. >> why don't we take a look at markets this morning. yesterday, the markets had their worst performance in 2013. the dow was down by about 129 points. that is less than 1%. s&p was off about 1 is.1%. and the nasdaq was off by about 1.5%. this morning, we do see some green arrows indicating that at least at the open, if things continue at the pace they are at right now, you will see some gains for the stock market, a bounceback after the dow fell back below 14,000 yesterday. take a look at oil price these morning. right now, you'll see that wti crude is up by about 47 cents. that's about 0.5%. 96.64. the ten-year note, which kwled yesterday was once again yielding around 2%, at this point, the yield is back at 1 of
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989%, sitting right at that cusp of the level where people start to sit up and pay attention to see which way rates are actually headed. take a look at the dollar this morning. you'll see right now that the euro is actually down. this was get something attention a few hours ago, earlier in the morning when it was under more pressure. 1.354 is where it stands right now. the big story is what's been happening with the yen. the dollar is up against the yen at 92.96. you did see some bigger losses for the yen and for the euro a little earlier this morning. we'll keep track of that. meantime, gold prices are up by about $2. 1,678.$1,678.40 an ounce. >> kelly evans is standing by in london. kelly. >> steve, good morning. we've had a lot of talk, a lot of earnings out this morning across europe. the market tone is better than yesterday, as you might expect. i can't say we've fully recouped our losses.
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markets are up about 0.6%. we can take a look at some of the major indexes. for the most part, it's green. the xetra dax down 1.6%. we saw declines in the range of 3% or more for some of these indexes yesterday. a lot of guests we've been speaking to on our program say they feel yesterday was more than of a pause than a start. a lot of people talking about taking profits in these markets. that's the conversation that's happening on both sides of the atlantic. on that note, i also want to show you what's going on nor the swiss market. ubs reported earnings today, ftse 100 adding about the same bp shares the last time we checked were trading to the up side after reporting earnings. let's take a look at what's happening with bp and ubs. still up 1.5%. we'll start off by giving you a sense of what bp's ceo bob dudley had to say. she asked him about troubles related to the oil explosion in the deep water horizon a couple
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of years ago. there were some problems and underlying sign webs but this sounds like an issue they're still trying to get behind them. take a listen. >> we've moved a lot of this behind us and i think we've met our commitments and we're going to keep meeting our commitments. but we'll see how long this takes. >> the group reported a net underlying profit of about $3.9 billion. interesting, own on our analysts pointed out, look, a lot of their improvement had to do with a much lower tax rate related to some of these charges. while there are positive signs in the business that in evestor do like, there's a lot of impact. different story at ubs. interesting to see people try and suck out what this company is reporting when it comes to this quarter. the market reaction was positive than negative. we're looking now down about 0.76% weighing on the swiss market. we had carolin roth since dow with the ceo of armani. if you want to talk about the commonalities between these two kms, it's the number of legal
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and restructuring issues occurring. ubs is trying to transfer from its investment banking to more of a wealth management model. margins in that business were weaker, weighing somewhat on investor prospects. but when it came to libor in particular, here is how the ceo responded to how they see their ability to put that issue behind them in 2013. >> i think that we made very good progress on addressing many of those issues during 2012. you are always going to have problems, but i think many of those problems will be more .more industrywide problems. >> yes. so saying they're basically sure it's an industry we're dealing with. but guess what? so is everyone. and that's certainly the case as the libor pros continue to widen. so a couple of ceo interviews to bring you there. wanted to play them out on air for us guys in case you didn't catch them in the wee hours of cnbc world. back your way. >> kelly, thank you. jim o'neill is the chairman of
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the goldman sachs asset management. jim, by the way, is on the advisory board for the cnbc delivering investor alpha conference. this year's gathering will be held on july 17th. jim, we've been watching the markets climb and climb and climb, even after yesterday's decline, you're looking at gains of almost 5% for the year. you've started asking, are things really that good? what do you think? >> good day, becky. how are you? >> great. good to see you. >> good day to you all. >> good day, jim. >> you know, as always, i tend to be in the cheerier camp of life. but the scale of the -- the rallies we've seen in january means that you've got to ask those kind of questions because nothing ever goes in a straight line, as we found out yesterday. so whether this is the start of a big correction or not, to be quite honest with you, i don't have a strong view on that today. but there's one or two warning
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signs. but against that, there is clear evidence of things doing better economically around the world. the reason we're getting a bounce in europe this morning is the service sector pmi for january has just come through and it's stronger again. and germany in particular is really strong. we're getting more .more evidence of many parts of the world doing better and as you touched on with the toyota report, you've got a lot of aggressive policies going on in japan. so i think the underlying momentum is for the year very favorable, but could we correct further? quite easily. >> you know, jim, the other people here around the table for us this morning, steve liesman and andy is here, too. we always appreciate having you here to talk us through these things. i know you're asking the question a lot of us have been trying to figure out yourself. hearing you be uncertain, that makes me nervous because you're somebody who usually has a strong feeling for where you think things are headed. we've heard that from a lot of big ceos, including the ceo of
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caterpillar. and i guess that gets us back to the question, do you worry about a spring swim again, particularly if some of the ceos of the world are starting to worry about that and are not allocating capital at this point and getting out ahead of things? >> well, i think there are -- part of the reason why the phrase that you referred to in the way that you said is it's not like all the big issues have disappeared completely. .for ceos, i guess in europe and the u.s., there are still underlying policy issues around that it doesn't take a great deal to start getting those worrying people. you know, we've got the sequestration coming in at the end of the quarter -- i'm ser, the you say of the month in the u.s. and that looks to me as though it's going to happen. and what twists and turns will come from that and where there will end up being new taxes on the table. something that really worries ceos would be any guess in the u.s. and you've got suddenly quite a
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bit of uncertainty about politics in both spain and italy again. against that, china looks pretty clear in any opinion and it's obviously the increasingly marginal place for the world, so that's a big positive. and japan is flirting with doing things that we haven't seen in over 20 years, which is another big positive. you have to put all that in the mix and that's what each ceo that looks at global businesses have to deal with. >> jim, steve liesman. is there a risk out there that is probably the hardest for these americans to understand, it's what -- it's europe. and i'm just wondering, your concern at this point? we've had a little bit of an increase in yields for some of the more volatile countries out there. do you think this is an issue that can explode on to the front pages on the minds of investors and create the kind of risk that we had last year?
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>> well, i think because of the underpinning from super mario at the ecb, i think the scale of dilemma we were looking at through the first half of last year is not going to be the same. but against that, in each of spain and italy, you've got two new issues on the table. the thing that really upset the markets yesterday was initially with the spanish, the whole government is embroiled in this strange fundamentaling story and widespread relief of corruption. and this is at a time where spanish people are suffering enormous pain. and so it's not easy for them to put that to bed without some fundamental reform. that is not just noise, it's news and it's not good news. and quite inkref credibly in italy, you've got the vague possibility that a certain
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personal that we thought might be be back in the force of italian politics could be. and everything that goes with that. even buying football was out of the uk to boost its popularity in milan, which is certainly very clever. >> but, jim, none of those things is the equivalent of the possibility of bankruptcy or a default by spain or portugal. all those things you mentioned seem to be a different order of magnitude. >> well, the -- i deed, that's the context i think one should currently look at them. but in the case of the spanish in particular, you have a government providing over youth unemployment in excess of 50% and despite that, seemingly bought into the austerity program. and if it tran expireses that the whole release of spain is riddled with corruption, you know, that is the sort of thing that could explode out of nowhere and cause problems. i think what you've said, steve, is right, but we have to watch
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illustrate caref it carefully because this is a new development. >> i wanted to follow up, jim, on that comment you made about china. there's a lot on of talk. china is back and we're seeing the managed triumph of an economy. is that your take? >> pretty clear to me. through wrought the whole concerns about china, which, of course, went on and off all the way through until the late autumn, i was very skeptical about that and i thought we were managing things pretty well. so i was and i remain very relaxed and we'll get the next sets of chinese data in the next week or so. and i'm pretty sure it will show further evidence of china bouncing a bit. .more importantly, that china is slowly adjusting to an economy not so dependent on exports or government investment. and that's what they need and that's what we all want from them. and that is pretty important. >> jim, is it your thought that people should at this point just kind of hold off and pull back and wait and see what happens over the next several months
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instead of sell in may and go away, is this sell in february and go away? >>. i prefer the sell in may and go away. it has a remarkable rhythm to it. and the fact that a couple of other things successfully passed in january, it's the first five days for the s&p and the element echo tells me about the 80% liability since 1950 and the month as a whole was up and that has a similar success rate. so i think rushing to sell is -- if you're a medium term player is probably not a smart move. but if you've made it, all the gains we've had in january to take some off the table isn't a crazy idea, either. what i would also add, and an underlying theme of mine, really, since november, i think on a global basis, the leadership is changing. and i think it's interesting this morning, despite the correction in the u.s. that china had another up day and china in, after having a bad
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year last year, has had a fantastic run since november. i think we're up 20% of the floor and it looks to me as though the chinese market is developing serious positive momentum. and, of course, japan is on its own mission, as well. so i don't think they necessarily depend on what's going on in the u.s. market where things could be a bit choppy for a while. >> okay. well, jim, as always, we appreciate your time and we look forward to talking to you again soon. again, jim o'neill. >> good day. have a good day. coming up, the u.s. government filing civil charges against the s&p. it's all tied to bond ratings and the financial crisis. jacob frankel is going to tell us what to think about this since the break. what's the one thing that surprises you about this story? >> the department of justice is the lead agent filing this lawsuit and not the s.e.c. ♪
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wouk, everybody. after the market's worst performance of the year yesterday, you see there are green arrows this morning. in fact, those dow futures are indicated higher by about 70 points. s&p futures up by 8 points. leads you to wonder if that was a item rather pullback and this is the march straight ahead. in our headlines this morning, knight capital will lay off 5% of its global workforce. the company recently agreed to be bought for $1.4 billion.
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the offering are part of a restructure to the automated trading firm. the justice department filed a civil charges against standard & poors. the government accuses the firm of inflating ratings and mortgage investments and setting them up for a crash when the financial crisis hit. joining us, jacob frenkel. he is now a partner at shulman rogers. good morning, jacob. >> steve, good morning. >> let's talk about the thing you talked about just before. what's significant about the justice department, not the s.e.c., bringing this case? >> typically when we see a doj case, wear looking at a criminal case. i think everybody has been expecting and looking for in the public particularly after the leven report on congress, 300 plus pages, berating the role of the credit agencies and the market collapse that there should be some criminal case. mindful that it's the s.e.c. that has civil enforcement jurisdiction involving conduct in the capital markets. .here, it's the department of
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justice bringing a civil case and the s.e.c. not bringing a case as part of this mix of cases. and that's really somewhat surprising. also somewhat interesting is almost the midnight filing. so we haven't had a chance to read the complaint. this will be interesting to see how this actually has been styled and presented because this ultimately, then, is about civil monetary penalties. it's not about somebody going to jail and it's not about an injunction and a violation of the security laws. >> so, jacob, just so you know, in the morning b as i was doing the reader on the story, i skipped over the word illegal behavior because i saw it was a civil suit. are they alleging illegal behavior here? and why if it's illegal, is it civil and not criminal? >> i don't believe they will allege illegal behavior, but when we're talking about criminal, it has to be
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established by an affirmative intent to defraud, which given everything that everybody has read causes people to question why isn't that enough. and then the flip side of that is we don't have the affirmative intent. there's a conflict of deliberate ignorance. the ostrich head in the sand ignoring duties. but ultimately here the burden of proof in a civil case is lower. it's 50% plus one. and i really don't believe in people seeing evidence of cripplelty despite what comes across as a certain reckless disregard for the integrity of the processes. >> jacob, i want to go through some of the numbers with you and talk about the negotiations that happened before this case was brought around a settlement negotiation. i reported this out yesterday. at one point, s&p offered about $100 million as the settlement. that came at the same time that the government was seeking what
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i was told was ten figures, which means we're talking about the minimum of $1 billion. of the 40 cdos that they're suing over, s&p made in total $13 million in fees. how do you ultimately come up with a number not just on a settlement, but if, in fact, s&p were to be found guilty, what kind of number would a judge come up with? >> and rye, that is a great question. the only crux i would make is because it is civil. it's going to be civilly lively. but i think what it really shows is the funive nature of this action even though it is brought civilly. it is not about the profits. it's about perception. we often see a disparity in items of was the fine imposed by the s.e.c. against certain public company enough or not enough given the conduct? and is here, this is almost like
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the one chance for the united states government with the large g to hold accountable the ratings company. you know, today -- >> so this is a -- >> jacob, there is a show trial element potentially to this. how about the conspiracy problem? there's a lot of people inside the s&p and i talked to them yesterday who feel this case is about retribution? with the downgrade of the government over the summer. and i don't want to claim that -- >> read the e-mails. >> what's in the e-mail? >> saying a cow could structure these things. these things are going to blow up. it's the same old stuff. this stuff is outrageous. at any company, we don't sell products to people that we know are toxic, are bad, that are going to blow up. we don't sell crap, if you'll pardon the expression this early in the morning. >> and nobody that works for you is going to send an e-mail
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that -- >> i disagree with the cover story. >> people who work for me and who work at fortune don't make things that they know will terrible like this. >> did you read the minutes of the fed meeting back in 2007 and '8? >> no. >> steve has. a lot of us have. and the fed would have these meetings and they would say they don't believe the subprime business is going to blow up. >> so your point is? >> so the argument is ostensibly, some of the smartest people in the room, if you will -- >> that's different from knowing you're making things terrible. i don't understand your point. >> there are clearly people in the room who think some of the stuff is crap, for lack of a better word. >> a lot of pem. >> you don't think there was a debate going on? there would seem to be other people on the other side of it. you think 100% of the people -- >> no, not 100%, but enough of them. >> there's one other element to that, too, which is it highlights the fact that there's
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an inherent conflict in the issuer-pay models. that is what gave rise to a lot of the conflict when you go back. >> jacob, i agree with you and oddly in the complaint which i have gone through and it came out last night and i stayed up unfortunately, in the complaint, they do not go through the conflict issue. that is not what this is about. there is no e-mail that says, we need this business, therefore, we need to do x. >> i think that's a tougher case that -- >> yeah. maybe they didn't go up to that. >> i think that's a tougher case to bring. you can go after the point you think these people are shams because they are putting out ratings that they don't believe in. and i guess the key is who is saying these things? >> jacob, could you comment on that, jacob? if they know it's a fraud inside, they call it a cow, does that rise? i think this is the nut of the issue. does that rise to the level of fraud? >> well, i think what we're
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seeing is the department of justice saying its civil fraud and, yes, inside any company where there is a belief that they did something right, whether it's real or whether it's -- you know, whether it's almost self-fulfilling, you know, this expectation that what they did actually was proper, they're going to look for explanations, whether it be the downgrade or, you know, everybody else's fault as the reason for, you know, coming under detault. >> that is a lousy defense, though, right? >> exactly. but at the end of the day, going back to, andrew, where you started, which is the talk about this being a demand for a $1 billion settlement versus offering $10 mrl, what it comes down to is putting up that number and saying, that is how the government is holding accountable these firms for whatever you call it, but it's certainly at a minimum what the government is alleging is civil fraud. and i think a lot of people are
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going to get lost in the fact that this is a civil case because it's an action being brought by the department of justice. >> what is the largest kind of fine that you could have expect? by the way, as a point of reference, the.can -- we hear about $1 billion settlements all it is time by banks. this is a company that in 2011 made $911 million. put knit context. we're not talking about jpmorgan making $20 billion here. jac jacob, what kind of number are you talking about? >> the short answer is we don't know. this kind of action is unprecedented. whatever that settlement number is, both sides are going to be unhappy. but to think it's going to be anything short of nine figures, i think that would be delusional. >> do we contact from this that from the financial crisis so far, there really has been no criminal activity abound? >> well, there have been low level cases, particularly in the -- you know, in the context of mortgage fraud. but i think it highlights the
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need to be held criminally accountable. i think what we're seeing is how difficult it is for there to be a criminal case in instances such as this because ultimately, much as there may be a demand for it, the department of justice still needs the evidence to establish criminal intent. you know, whether it be the cow or anything else, you know, they have the language in the e-mails is just one xoevent that ultimately is being able to prove these cases beyond a reasonable doubt if it's criminal in front of a jury. >> jacob, very quickly, again we we talked briefly about how saying everybody was doing it is no defense. that's not going to help them out. and the street has already figured out that this is going to move to the other ratings agency, as well. if you looked at the moody's shares yesterday, they were down 10%, indicated lower once again this morning in the premarket. so what would you advise as somebody who was a former prosecutor and someone who used to be looking over these things for the s.e.c., too? what would you be advising therm in terms of what their best
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possible defense could be? >> well, i mean, i think it's hard to say based -- i think the short answer as to what the best defense is we followed our processes and procedures. the first amendment protects the ability to announce what those ratings are. but often, the real issue is how long do we want this to be on the front page? >> ta pit ewe late. >> the question is at what price -- >> but there's an issue. it's actually not just the settlement, but if you have to include liability. >> exactly. >> so it becomes a real problem. >> and that can be one of the interesting twist because we know the s.e.c. settles these cases without admitting or denying talgzs. there is no precedent here with the department of justice and that could play very differently. excellent point on how that settlement would be structured. >> jacob, thank you. >> great conversation. >> thank you. coming up, a man who helps
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see your doctor, and for a 30-day free trial, go to welcome back to stock these morning. stocks coming off their biggest losses since 2013. russ, good morning. >> good morning. >> what do we make of this past day and a half of mini roller coaster here? >> not much. i think is the short aj answer. stocks had a phenomenal run in january. we saw record flows. i think yesterday was a bit of profit taking. i don't think it represents much, other than the fact that it's not realistic to expect the markets to have another month like january for the rest of 2013. >> okay. so, russ, all this money is
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coming in. what are you doing with your money right now? i mean, are you sitting, waiting for a pullback, thinking that there's going to be a great opportunity or are you just -- are you going all in? what's your plan? >> well, i think a couple of things. first of all, we do think the market can move higher for the remainder of 2013, but obviously not at this pace. and i would expect that as the flows moderate in the spring, we're going to see more volatility. that said, we do see good opportunities. but most of them, or at least many of them are outside of the united states. and one that i would highlight, when you look at the valuations right now, u.s. stocks look reasonably priced. they look cheap relative to bonds. but they look priceyer compared to the rest of the world. and is that's when we see some of the better opportunities particularly in the emerging markets. >> so give me some countries and give me some names. >> sure. china is a market i think can go much higher. it sat out a good part of the last few years. it has rallied as of late. but this is a market still trading at less than ten times
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earnings. in addition to trade last year with china, a lot of people are expecting a hard landing. instead, china has achieved a soft landing. it will global 7.5% to 8el ers this year. latin america, another place where we're seeing reasonable valuations and expectations coming down. these are the type of places i'd like to be overweight in this environment. >> russ, the great andy surer from "fortune" magazine is here. >> hey, andy. a lot of people are felg like they've missed the rally in stocks, but you don't want to staying in bonds. they're caught between a rock and a hard place. unintended with you guys, i guess. sorry about that. what's your advice to them? >> there's a couple of things. when i think about this, i want to do it for my portfolio construction base. it's not stocks or bonds. people are going to earn both in their portfolio. right now, we would be
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overweighting stocks with their valuations. the key is to look for those areas where you're getting real or after inflation returns while minimizing the risks. that suggests taking down your treasury allocation significantly. looking at credit, looking at structured bank loans, looking at municipals that have been in high yields. not because these areas look particularly cheap, but on a relative basis, they offer much better yield with less risk in my opinion. >> okay. russ, we're going to leave tlit. we appreciate your perspective. we're going to head back and see how this plays out. >> fair enough. thank you. >> thank you. >> i'm having withdrawals this morning. can't log on to twitter. let us know if you're having the same problem. not sure if it's us or them. when we come back, her fans simply knot know her as mrs. moneypenny. she wros a popular ft column. some of they are stoes are almost too much to believe. mrs. "m" is with us on set. we'll be right back. ♪
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welcome back, everybody. yesterday was the worst day of the markets in all of 2013. things seem to be turning around sharply this morning. in fact, dow futures are up 95 points. s&p futures up close to 10 points. we'll keep an eye on this. but, again, this could be pushing back and recapturing all those gains from yesterday at this pace. in our headlines this morning, president obama will meet with chief executives from 12 companies today, including goldman, lloyd blankfein. yahoo!'s marissa mayer. >> you all know her as maybe any favorite columnist.
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we have a high flying businesswoman with information from davos to career advice that could take you straight to the top. we're joined on it on the set by mrs. moneypenny. how are you? >> i'm very excited to be here. >> i always think of you as a great barometer of the cultural confidence in the board room. but before we go there, you have a purse -- i brought my purse, yes. >> and is right before we came on, you said you happened to talk about your purse. we don't normally have lots of guests, frankly, who have purses to begin with and then those who bring them on set. so what can you tell us about this? >> i wanted to share a career tip for business women watching this morning, okay, which is what your purse says about you. think about wa your purse says about you. i want my purse to say i'm a businesswoman, i'm serious, you pink, it hasn't got studs. it's serious. you about i also wanted to share this is my -- in the uk, i now
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present a tv program on level frugally, which is a subject about which i don't know that much but i've had to learn, okay. >> not with that bag you're not living frugally. >> this bag is a little bit difficult. so i have a top tip for every businesswoman. how you can transform the way people think about you and with your purse to just $3. okay? just $3. this is what i do with my purse, okay? and i walk in to -- >> oh, look at this. >> no. i walk into a business meeting with it sticking out and people don't mess with me. you know, you read a serious newspaper, you can do it with the "wall street journal," to be honest. >> or fortune magazine. >> or "fortune" magazine. >> you know, it's interesting -- well -- >> what about men purses, murses or fannie packs? >> i'm not sure about man purses in business. i'm not sure about that kind of thing. >> what about a briefcase? >> men can just be carrying a newspaper.
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a man walks into a business carrying the "wall street journal" or the ft, you know he's pretty serious. >> i love this bag. i think it's great. >> now if the bosses are watching were you're giving it away. >> everyone is going to show up at their 9:00 meeting with a paper in hand. >> and even with a pink studded purse. >> that's a possibility, right. >> i saw you in davos. >> yes. >> you're a jet setter, we know. and you know how everybody is feeling. and then you wrote a piece about sort of the fake austerity that's going on in davos. speak to that. what do you think is really happening? >> well, you know, we hear about the age of austerity, everyone is cutting back. this year, i noticed that the bank receptions were having real champagne again. to me, that was a real barometer. >> cheesy american stuff. >> no, no, it was french stuff. and we've had three years of banks serving not the real thing and this year for the first time
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the banks have come back and are serving the real thing. >> did you have that experience in davos, that you realized they were serving you real champagne? >> it's not something i would notice. you know, i'm just not that much of a connoisseur. i don't really like champagne. but there was some single malt scotches at some of the eaches that i went to. i didn't know because i haven't been in a long time. it had been 15 years. >> davos isn't really a barometer of anything except loviating at a certain point. >> we're going to have it again then. >> we're going to have a deal announced hopefully in the next our two by dell. that's a big deal, $23 billion deal if it happens. >> it was there wandering around in the snow. >> what did he tell you? >> he didn't tell me about a deal, i have to tell you. and actually, people kept thanking me because i was doing tv interviews for the uk while i was there and everyone was talking about tony blair's speech on europe? no.
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they want to know if sean parker is bringing beyonce. >> but he didn't. >> no. he brought john legend, much better than beyonce. >> michael dell couldn't be photographed with certain people. >> include john legend. >> the other thing i want to get at is job advice. should people still try to get jobs in finance? is that a good place to get a job? and if they actually want it, what are they supposed to do? >> i think first of all it's great we had a financial crisis because i think it stopped the die version of talent to banks. it should be other places, you know? it's the best talent kept going to banks because it pays so much, we would never get anybody decent in government, we would never get anybody decent in business. now people should only be going for jobs in the financial services if they really want them and they really are interested in it. when i was 13, someone taught me in this relationship between the rate of interest and the price of bonds. i was gripped. and, you know, if you were like that, come work in financial services. >> i'm the wrong person to ask this because i'm not a woman.
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but do you feel that things are -- >> ask another woman. >> becky could ask it. but no, do you think the grass ceiling is cracked, is it getting any better than before? >> i don't think of the glass ceiling, andrew. i think we can smash the myth of the glass ceiling is to smash the myth that women can have it all. they can't. if they want decent earnings, they have to get up early, they have too range for child care. >> you're in the carol camp. >> i was. she was with me looking like a regular girl. >> shreeve blair said the same thing. >> i don't agree with that, actually.i think we have to make it easier for women to go in and out of the workforce. >> women need a -- >> women care for their children, come back and have means by which they can come back in to go full time again and/or come back in and -- >> yeah, but i think it's a combination, also.
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i think it's a combination where -- >> 50% of the responsibility is to the woman herself makes. >> but most women who i know who are moms who are working are working late at night. they're up after their kids to go to bet, they're up in the morning beforehand. it's not the traditional set of thing. >> what do you mean about most women you know? what about you? >> but it's a common thing. it may not be traditional hours, it may not be traditional work set up -- >> but flexibility should be a standard in corporate america. >> but you can't expect governments and corporates to fix this problem on their own. women have to come to the party, as well. >> mrs. moneypenny, we have to leave it there. your book is out in paper back. career advice for ambitious women. that talks about a lot of these issues. >> thank you. >> thank you for being here. include purses and murses. is it a purse or a bag? my wife doesn't like the word purse.. >> no. in the uk, that means something totally different. we call that a handbag.
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>> fannie pack. >> there you go. >> when we come back, the so-called smart money, institutional investors michael phelps joins us with his best and reported worst hedge fund. find out who made the grade after this. first, check out the "squawk box" green room camera. its noriel roubini. two one two. verify and lock. command is locked. five seconds. three, two, one. standing by for capture. the most innovative software on the planet... dragon is captured. is connecting today's leading companies to places beyond it. siemens. answers. ♪
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welcome back. 55 of the world's largest hedge fund firms today, join us with a report card editor michael peltz. number one, adage capital management. who are they? >> they're a couple of guys, they came out, harvard management back in 2001 and started adage. when they were there when were great. they beat the s&p year in, year out. and very popular among the investors that we surveyed. >> this is a survey of investors on eight different categories? >> yes. >> but performance a big part of it. some -- >> performance was clearly the most important thing. alpha generation. risk management was incredibly important. transparency. alignment of interest. independent oversight. all things that investors are looking for these days. >> one of the things that i thought was incredible about adage is they charge 0.5%.
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>> yeah. >> but also only 20% on the alpha generation. in other words the return above the s&p. not 20 on all returns. >> right. no it's pretty incredible. they're really institutional manager. you look at those 50 basis points there's less than among -- >> mutual funds -- >> half of what a mutual fund would charge. >> it's really pretty impressive. the fact that also they're only getting a performance fee if they beat the s&p. >> one more at the top, bridgewater is always there. citadel moved up a lot. >> citadel moved up. they were up 44 a year ago. they moved all the way near the top. very impressive performance the last two years. >> and we've got to go now to talk about some big names at the bottom here. eat 'n park, fortress, 52 out of 55 eat 'n park. 55 and i saw another one, pauline is that just -- were they higher last year? >> it's all those firms were a little bit higher last year.
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part of it is performance for sure. but you know, there's also things like alignment of interest with some firms they're concerned about eton park, all the big hedge fund firms has been a disappointment since they came out. you recall, firms started about a decade ago, youngers partner ever at goldman at the time when he started. and the performance really has been mediocre. and the lockup terms, you know, have been terrible. so it's, you know, overall it's probably one of the more disappointing. >> going back to the company, one of the companies at the top is bridge water. and that's a biggie. very interesting the way they manage that firm in terms of evaluating employees. very thoughtful manager in terms of taking care of the people. >> appreciate it. >> you look at bridgewater. really impressive. they didn't have a particularly good year last year. the firm was just up a little bit -- but people really respect
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him in terms of leadership. >> thank you. coming up in the next hour, "squawk" in session. house majority leader eric cantor is going to preside. but first before we get there, there he is. he's right here on set, nouriel roubini. best known as dr. doom. we'll ask if he's seeing opportunities in the market when we return.
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the bulls battle back. futures in positive territory after stocks post their worst one-day performance of 2013. find out if there's more room to run and where you should be putting your money to work. >> a message makeover for the republican party. house majority leader eric cantor looking to put last year's fiscal battle in the rear view mirror and roll out a new
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agenda for the party. we hear the details from the man himself. and it was light's out in new orleans. a look at what metlife stadium in new jersey offers to prevent another delay for the nfl's biggest game. the ceo of energy company nrg is going to join us with more. no power problems here as we fire up the lights on the "squawk" set and get ready to make you money. the second hour of "squawk box" starts right now. ♪ good morning, everybody. i'm becky quick along with andrew ross sorkin and steve liesman. joe is off this week. get this, yesterday was the worst performance for the markets since 2013 began. this morning the futures are pointing to a big rebound in the markets. you can see right now the dow futures up by 93 points. s&p futures up by more than nine points. yesterday, they gave back about 129 points for the dow. so at this point it looks like we are starting to see some sort of a big rebound, maybe taking
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back all that ground it lost yesterday. the dow, in fact, starting off this week as we mentioned with big sell-off. there were renewed concerns out there about europe and some profit taking, as well. the dow actually finishing below that key 14,000 level yesterday. mutual fund pioneer jack bogle spoke with us yesterday on the program and he said individual investors are still in the position where they need to look at stocks, despite the market's ups and downs. >> the time to get bullish was when it was bearish back in february of 2009. and the market's going up 100% since then. i think all these things are so mixed up in the minds of investors they should realize that guessing, whether it's going to go down 50 -- 50% or up 100%, as it did since then, they should just be investing all the time, ride through those times. >> disney is going to be a stock to be keeping an eye on in today's trading session as the entertainment company and dow component gets ready to report earnings after the bell.
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and this morning we heard from bp. the company's fourth quarter profits beat analyst expectations. earlier this morning, ceo bob dudley told cnbc's julia chatterly that 2014 is going to be the year that the company's fortunes begin to turn around. >> 2014 is when things really start moving, because in 2013 we still have about 150,000 barrels a day of world divestments to come. underlying we'll have production growth in 2013 but we're still shrinking down a bit. >> steve liesman has more top stories. >> thanks. in this morning's headlines, the government has filed a civil lawsuit against standard & poor's and its parent company mcgraw-hill. the suit says fees, market share and profits properly influence s&p ratings criteria during the financial crisis. s&p already responded to the lawsuit even before it was filed saying it was entirely without merit. president obama has signed a debt ceiling suspension into law. the measure allows the government to keep borrowing to pay its bills.
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it puts off the next congressional battle over the debt ceiling until may. boeing is asking the faa for permission to resume test flights of its grounded 787 jet. it wants to test the batteries and other components in flight since certain conditions can't be simulated on the ground. the faa is evaluating boeing's request. in wall street 2013 rally interrupted with a major averages suffering their worst one-day loss in a year on monday's trading. the last hour we spoke to goldman's jim o'neil about the prospects of making money in this market. >> i think to sell if you're a medium term player is probably not a smart move. but if you've made all the gains, to take some off the table isn't a crazy idea either. >> joining us now is nouriel roubini, chairman and co-founder of roubini global economics. you're not like a market master, maybe like a market jedi. plus andrew still here from fortune magazine. the one and only. we haven't seen you in a long
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time. great to have you here. >> great being here. >> so we've been on a little bit of a roller coaster. last time i saw you was in davos just two weeks ago. there was an enormous amount of confidence. you saw actually build in the stock market here in the united states and elsewhere. where are you on the economy broadly? >> i think there's some positives, both in the u.s., and in the global economy, and there are some downgrade breaks. of course markets -- you know, a year ago in davos people were worried about u.s., about eurozone breakup, maybe war between israel and iran. toes compared to a year ago are reduced. they're not reduced because economic growth is picking up. in japan they've had deep recession in the last decade. in the uk they worry about a triple dip recession. in the eurozone they don't worry about the triple dip, the double
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dip and in the united states we've had q4 growth that was negative and for the sequester, you could have a double dip recession. in your economic data there's a gap between the markets rightly so are buoyant. >> you say rightly so they're buoyant. >> first of all, the risk of a eurozone break up -- a war in the middle east -- >> reduced. >> the risk is reduced in part not because economies are doing better but because middle of last year central bank s -- unemployment rate target. the doe has gone from quantitative easing, the --
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there's much more easing. there's downside to the economy, a massive round of more unconventional monetary policy and some improvement in the markets is not because picking up. some are -- >> how much do you worry, as things get more buoyant the fed and other policymakers around the world say you know what? maybe we got to take our foot off the gas and what does that ultimately mean to all of us? >> i don't think that's going to happen any time soon because in my baseline growth remains in the u.s. in advanced economies below trend, positive growth in the u.s., weaker in japan, uk, recession in the eurozone. inflation is still below target in most advanced economies. used to be 3%. we don't know whether it's falling to 2.5%. now there are some positive in the u.s. this year. you have qe-3. you have housing.
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between the fiscal deal, when i add the positives, i get economic growth in the u.s. of 1.7%. it's not very -- below trend and below consensus. >> taking $300 billion of government spending out. can the private sector keep plugging along. the gdp numbers for the private sector were pretty decent in the fourth quarter. you had actually accelerating consumer and business spending. would you end up saying we could have this decent private sector while we go through this, what everybody calls necessary adjustment on government spending. >> yes. i think it can happen. because, you know, the cost of deleveraging has occurred in parts of the product sickle, as occurred in the banks and corporates. but the thing for the last two
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years, consumption growth has not been great because real wages were growing. they were pretty flat. it was consumption was growing as we give to the consumers another 1.4 trillion tax cuts and transfer payments that were paid with another 1.4 trillion of increasing public debt. once the deleveraging of the public sector occurs, consumption growth is going to be slower. on the other side -- >> but wall street has shown it can parse a gdp report. >> yeah. >> that it can see negative 0.7, but see that there was upside in it, and most of the negative was the government. >> wait a second. that's a one quarter pass -- >> my point -- what happened in q3 we have defense spending inventory -- the average of the two is 1.5% growth same thing as the first half. so the economy for the time being is only growing 1.5%. now some positives as i said would pick up the growth towards
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2.3%, 3%. but then if you have a drag of 2% on the fiscal side -- >> -- jekyll and hyde report. it says my private sector is okay, i'm going through a necessary government spending adjustment. >> but the private sector is okay, but if you're going to raise taxes and reduce transfer payments are the reduces income growth and forces deleveraging. job creation is picking up, creates income. the tax increases and the payroll tax elimination reduces, so your forces are going in different directions. >> -- austerity and even people in the bond pits will argue we need to stop government spending. you hear rick santelli talking about this all the time. can we survive the process of the austerity? >> i think it's going to be a drag on economic growth. part of the growth over the last two years was the fact that we postponed the deleveraging of the public sector and consumer spent more income than otherwise. as we do that there will be a cost of deleveraging the public sector that slows down growth
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and is the pickup in economic activity on average growth is going to be below trend. i'm not saying recession. 1.6, 1.7 is okay, unemployment is going to remain high. it's not going to fall to 7% which is the figure for the fed to stop qe this year. not going to fall to 6.5% for the fed to stop zero policy rate. >> i think they're going to stop qe flee when there will be an unemployment rate close to 7%. it's 7.9 right now. paradoxically when the economy picks up -- >> stop at 7% you mean on their way to -- thinking that they're going to get ahead of it -- >> they've already decided they're going to stop zero policy rates when the unemployment rate is 6.5. not saying they're going to stop qe-3 with the purchase of the bonds. most people believe that number is going to be between 7 and 7.25. i don't think we're going to reach the level of unemployment rate this year, even with job creation when the economy picks up, lots of people have left the
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labor force, that's why unemployment rate has been stuck at 7.9. paradoxically when the economy is bad, the unemployment can fall faster because people leave the labor force. when they come back to labor force it's hard to get to 7%. that's why they're going to keep easing money for as far as the eye can see. that's going to be positive for the markets. >> we got to jump -- >> take it -- >> he's going -- >> lots of time. >> okay, good. >> all right up next, nfl commissioner roger goodell saying sunday's blackout won't impact new orleans' chances of hosting another super bowl. but now the focus is on metlife stadium in new jersey. that's the site of next year's big game. we're going to hear from the ceo of nrg. he was at sunday night's big game, sat there as the stadium went dark. but he is also looking at the technology behind keeping the lights on. we'll have more. if you have questions or comments you can follow us on twitter. yes it's back up and working here, too. @squawkcnbc. send us your thoughts.
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welcome back to "squawk box" this morning. take a look at futures right now. green arrows across the board
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after a tough day yesterday. dow looks like it will open up about 105 points higher which would be a pretty big jump. s&p 500 up about ten points and the nasdaq up close to 16 points. steve? >> thank you, andrew. more than 71,000 fans were left in the dark at the super bowl on sunday. among them, a man with a unique perspective on the issue, david crane, nrg energy president and ceo. so, david, you have a plan, or something that's already in place, right, which is to bring solar power to metlife stadium, which is where there's -- the super bowl next year is going to be. >> yes, well metlife stadium has 1300 solar panels around the top of the stadium and they power the l.e.d. lighting. and then 25 times more power than the l.e.d. lighting so they add power to the full stadium. >> i have to say something, which is that my band just got a series of l.e.d. lights. they're amazing. this is a huge revolution in lighting. they're this big, they're really thin. they take no power. they're not hot.
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so that's part of why you could do this. how -- give us an idea, what is 1300 solar panels by way of power? how many homes is that? give us a context for that? >> well, in this case it's 400 kilowatts, which that would be a few hundred homes. but nfl stadiums use a lot of power on game days. 18 mega watts, i think, at metlife. so, the solar at moatlife won't be able to do it all by itself. it will need backup from the grid or diesel generators. but believe me after what just happened in new orleans there's a lot of focus right now to make sure that that doesn't happen again. >> you were at the game. >> yes. >> so you're there. you're seeing this happen. this is your business. you're thinking what? did you know what it was when it happened? >> well, like i said, the first thing that happened it was right after halftime i was still trying to figure out how to turn the light off on my little finger light that they had given us and my daughter pushed it down and i was like whoa, that was really dark. it had just gone dark at that time. the first thing i actually thought when it happened was they have great backup lighting
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at the super bowl. you could see everything. there was no discomfort. and we -- what happened, we saw this in hurricane sandy. it wasn't so much about the light, it was that nothing else in the stadium worked. and the water wasn't working in the stadium. and 70,000 people drinking beer, and no water flowing in the stadium. that's a disaster. >> who's to blame in that instance, by the way? you know all about this. you know all the players and how this got this way. >> well, i mean, i think that they're still assessing what exactly happened but it's pretty clear the first e-mail i got was from we have what's called a control operation in louisiana and they reported that there was no spike in the system. so i would say this was more something that happened at the facility itself. but believe me, everybody -- >> is there anything that you're doing that's going to at metlife that's going to make sure this doesn't happen there? >> believe me, as soon as they know the lessons learned from new orleans, we will be convening to make sure that this doesn't happen. >> doesn't it seem like it's happening more and more? it's happened at a world series
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games. i mean i don't remember this stuff happening as a little kid and now it seems to happen every three or four years. >> that's a great question. and that's the big infrastructure question, which is, we have a grid that's not becoming more reliable over time but we have a society that's becoming more dependent on electricity, and more tolerant -- and more intolerant of -- there have always been businesses in this country that have double or triple redundancy requirements. hospitals and things like that. but what we're seeing now, and what we saw in new jersey after sandy was, you know, the atms weren't working. the convenience stores weren't open. >> so what are you doing that's different, david? what is -- >> well, you mentioned solar power. i mean one of the things we found in new jersey was if you had a diesel generator that wasn't any good after you couldn't get diesel. but solar power obviously works all day. so what we're doing is configuring solar power right now so that it can actually provide some what we call grid independence. i think grid independence is a
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term that all businesses are going to be thinking about a lot. >> david, we talk about the grid, and it's, you know, this amorphous thing that it's hard to really quantify who's putting what on it. are you saying that we haven't done enough infrastructure spending as a nation? the government hasn't done enough? or that the utilities responsible for maintaining and building out that grid haven't done enough? >> what i would tell you is that in an era of extreme weather that we're entering, that the grid's going to get torn down. it's insane to have a 21st century economy that's based on wooden poles. and now the technology exists for people to have more distributed generation and take -- i mean metlife stadium has its own source of power. it's not just a taker of power. and so i'm saying that more things are going to be put in and really everyone who runs a business, and homeowners, have to be thinking about having a degree of independence which they can provide to themselves. >> isn't that going to destroy your business? i mean, if everyone generating their own power, little power plants all over the place? >> as you know from your own
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work is if a disruptive technology is coming to your sector, you can either embrace it and try and lead or you can try and resist it and then get rolled over. and we are embracing it. >> we have a natural gas generator at our house after all the blackouts we've seen in northern new jersey after the last couple of years where we went i think three times without power for a week or longer. so we have a natural gas generator. but it does bring back is this really just a question of extreme weather or is this a question of too much demand for not enough infrastructure? >> well, i think it's situationally dependent. but certainly the extreme weather in this part of the country, i'm with you, three times in 18 months we've been subject -- >> will you ground the wires? >> happening more and more. >> put them in the ground? >> yeah. you talk about them being on wooden poles. there's been a conversation about whether to put them in the ground. >> i was a fan of that until i realized there are problems with putting them in the ground, too. >> becky's got the solution in that the natural gas distribution system is underground.
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so, unless you're talking earthquakes it's fundamentally safer. >> i forgot about earthquakes. >> than the electric transmission system. >> so what happened to a smart grid? >> a smart grid the idea that we could put some solar panels in arizona and send that electricity to new york city, i don't think that was ever that realistic. but, what we're talking about is smart grid technology, in that with thousands or millions of sources of electricity all around the country, the i.t. that's going to be necessary to make that all work together is going to be pretty huge. >> david, thank you very much for coming in and explaining all this stuff to us. >> come on back. >> i could go on for aheil. >> we didn't talk about the tax credits and whether or not that's going to lay. >> who would have known that electricity could be interesting. >> thank you. >> thank you. >> when we come back -- >> blackberries every second it's very interesting. >> house majority leader eric cantor and his plan to give the republican party a message makeover. "squawk" will be right back. at 1:45, the aflac duck was brought in
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michael jackson. coming up we've got more market thoughts from guest host nouriel roubini. plus the house majority leader eric cantor. he's going to be joining us. he's going to talk washington and wall street and the future of the republican party. when "squawk box" returns. ♪ ♪ ♪ ♪ ♪ [ male announcer ] concept. calvin klein underwear.
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welcome back to "squawk box" this morning. in the headlines, toyota raising its full-year profit forecast. it's seen increased sales and also expects to benefit from favorable exchange rates. the automaker expects to person $9.3 billion for the fiscal year ending in march. up from the prior forecast of $8.5 billion. and barclays has set aside another $1.6 billion to compensate customers who were sold financial products under misleading circumstances. it's the fourth such set-aside, that's what we're calling it, for barclays since may of 2011.
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finally blackberry ceo thorsten heins is telling the associated press he's disappointed the new blackberry 10 handset won't be released in the united states until mid-march. but he says early data shows sales in the uk market are now above forecast. he says the u.s. delay stems from a more rigid testing system by phone carriers and that's been a big debate. they've been blaming the phone carriers in this instance. >> not the only one who's disappointed. you're very disappointed. >> no handset, no purchase. our guest host is nouriel roubini. chairman and cofounder of roubini global economics. sticking with us andrew sawyer. nouriel, we want to try to put things in context. you were very worried before the crash. you warned people about what was coming, all the hard times that came down. you told us now that you're less pessimistic about what you see out there but if you had to put it on a scale, like where you stand now versus where you've been looking at the economy over the last ten years or so, on a
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global scale, how should we really put this in context? >> on a global scale it's about 3% growth, 5% in emerging markets are growing close. most advanced economies still have below trend sub par growth because the process of deleveraging is ongoing. deleveraging is less ugly in the united states, more monetary and fiscal stimulus. it's been more ugly in the eurozone, uk and japan, fiscal drag. the fiscal austerity and less monetary easing. now they're moving towards more monetary easing in other parts of the world. but the fiscal drag is going to be not just in the eurozone and the uk, but also in the u.s. and the core of the eurozone. then there are the positives, deleverages have been ongoing for a number of years. >> have you been surprised by the market reaction or does it make sense to you to see the u.s. markets do so well when you put things relatively speaking? >> it's not surprising. because monetary policy is extremely loose. the fed is going to do qe-3 at least until the end of this year, maybe even next year, zero policy rates at least until the
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end of next year and the economy is gradually recovering. from market point of view having slow growth below trend is a positive because -- with zero policy rates and rates being so low people are chasing and searching for year. it is equities, commodities, emerging markets. so you have a significant amount of -- consistent with -- >> let's, you know, dr. doom. >> yeah. >> dr. doom means that the worst case scenario, the bottom falls out. the dollar crashes. the euro falls apart. >> yeah. >> we were, i think at the same dinner, and martin said the financial panic after six years is over. are you now ruling out worst case scenarios? >> i think as any economist you always have baseline. i give you my baseline. there's an upside scenario in which everything becomes goldilocks. and there is a perfect storm scenario. it could occur but very low.
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one in which you have an ax acceleration of the eurozone crisis and eventually a breakup in which our fiscal stall, the hard landing by china at the end of the year occurs because they don't switch from fixed investment. now if those four things happen at the same time is a very low one and therefore that's not my baseline scenario. each one of these four in a milder way is undergoing. we'll have a fiscal drag this year with the sequester. it's going to be larger than otherwise. as we have seen yesterday the problem of political, economic numbers of the eurozone, lack of competitiveness, i think china had a problem, too slow for the source of consumption. by the middle of the year, once negotiation fail, enough is
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enough and, it could go higher. even in a milder manifestation of some of those things could imply that while the first half of the year is better economy, better market, some of those are going to start to worry the market. my baseline is not a perfect storm. are there downsides? yes. what is likely to happen is a complicated answer. also on political practice among others like in eurozone. >> aren't you concerned, nouriel, that u.s. investors are rushing in to the equity markets? and $39 billion went into stocks and etfs in january. that's the highest month since february of 2000. there are net outflows last year going in to the wrong time. i'm surprised you're not more pessimistic about u.s. stock market. >> you know, earnings have done well so far. even if margins are quite wide at this point. i'm not sure they can widen again and everything's going to depend, one, on what the economy does. if the economy is growing okay, 1.7%, even below trend like it
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is right now, and fed is on hold, markets this year can do well. the stock market can go up 10%, 15% for the year. paradoxically, if it was actually stronger economic growth and the fed was going to take off the monitor accommodation people are going to start to worry about rates rising and more of a correction. paradoxically the goldilocks for the market is slow growth and the fed being on hold for longer than otherwise. bigger fiscal drag or the product sector doesn't improve as much i think there will be surprises. my baseline for the u.s. is 1.7. it is below consensus of 2.2. if it gets worse than that then i think markets are going to start to worry about growth, about earnings and there might be a correction. for now that's not the case. >> how much fiscal adjustment is in that 1.7? is that a negative on the federal or a zero >> >> well, it was originally my baseline was 1.5% of gdp fiscal adjustment. this year with a drag of 1.3. i think if we're going to get sequester or something similar to 110 or 200.8% of gdp fiscal
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adjustments or the fiscal drag adjustment is 2% of gdp the drag will be 1.5% of gdp depends very much on what's going to happen with the sequester. i think we're going to go into the sequester and i think the republicans are smart enough they're going to put off the table the debt ceiling because they don't want to accuse of causing a debt default. they postpone it. they're going to continue the current levels so they're not going to be accused of shutting down the government. >> by the way, is that going to go on for three months or actually put it off for a year or two? >> they're going to do it every three months and every three months postpone it so that you know, the democrats on a short leash. i don't think they're going to try to default and nobody wants that. but they think that the democrats had all the leverage in fiscal cliff because of taxes. i think this time around it's the spending cuts automatic and they want to play hardball and there will be a game of chicken. we'll see which side blinks. >> what's your sense on employment? what's your projection in terms of where we are on the unemployment picture 12 months out? >> i think there will be a slow
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reduction of the employment rate because we're going to create something between 150,000 and 200,000 jobs essentially per month. >> that's going to be consistent? >> ups and down but the average for the year is going to be that much. what is pointed out the employment rate might not fall as fast because usually when you pay 200,000 jobs it falls month after month there's been stagnant at 7.9 because as the economy recovers -- back into labor force and unemployment can stay higher than otherwise for longer than otherwise paradoxically. >> do you think we talk often about the book this time is different, and this idea that we are just going through a deleveraging period. how much of the amount of time it's taken us to get back to we have is a function of policy in washington versus just what happens? >> i think policy matters. i mean all advanced economies have had painful deleveraging. after up the crisis of 2007 now we're six years later and still adding below trend growth and actually downside risk of double dip recession in the eurozone, and japan.
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the u.s. has done bad. why? first of all the fiscal stimulus has been aggressive in the u.s. while in eurozone and uk we had front row fiscal austerity. of course we need fiscal austerity in the short-term cutting spending raising taxes makes economy weaker and two the fed has been much more aggressive and recently than other banks doing monetary easing. we have a more slow process of deleveraging both of the private and public sector and you compare united states, less than 2%, compared to uk in the eurozone, in the recession, you could argue that policy option, of having easier money and more fiscal stimulus for longer than otherwise, it make the economy better now we're going to pay back some of it because by postponing the fiscal austerity now we have to do it and there will be a drag on growth for next year. >> -- argue that the economy has succeeded if it has at all, despite what's happened in washington. >> i would disagree on that one. i think the monitor of 9 fiscal stimulus was necessary. of course in the next year or so we have to think about when we
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phase in the fiscal adjustment and when we phase out the monetary stimulus. but otherwise, the alternative would have been too fast deleveraging we saw what happened. we have a test what happened in the euro zone and united kingdom. tight money and tight fiscal has led to double triple dip recession. the folks at bridgewater say deleveraging of the assets has been beautiful in and the one in eurozone has been ugly. the one in the u.s. has been less ugly. i wouldn't call it beautiful because unemployment is still 8%. we're six years into the recession -- >> and we're still 8% unemployment rate but relatively speaking we're less ugly than the rest of the world. >> all right. nouriel. >> and it's because of policy. >> we're going to continue this conversation. our guest hosts are with us for the rest of program. we have another big guest waiting. >> huge guest as becky -- andrew suggested. house majority leader eric cantor will unveil a new message today from the republican party. but before we give the speech this afternoon he's joining us right here on "squawk box." and on top of the next hour more room to run we ask baron
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capital's ron baron about making money in this market and why he says it's not too late to get in the game. you can find "squawk box" online and on mobile, too. follow us on twitt twitter @squawkcnbc. like us on facebook. visit our show page at squawk, write a handwritten letter to andrew ross sorkin. send a valentine to becky. whatever you need to do. great, everybody made it. we all work remotely so this is a big deal, our first full team gathering! i wanted to call on a few people. ashley, ashley marshall... here. since we're often all on the move, ashley suggested we use fedex office to hold packages for us. great job. [ applause ] thank you. and on a protocol note, i'd like to talk to tim hill about his tendency to use all caps in emails. [ shouting ] oh i'm sorry guys. ah sometimes the caps lock gets stuck on my keyboard.
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welcome back, everybody. this afternoon house majority leader eric cantor is going to be delivering a major policy speech at the american enterprise institute. but first he joins us with some of the details on this kantor, thank you for joining us this morning. >> good morning, becky. >> you know, we have been awaiting this because we've been getting and hearing little bits and pieces about this for a couple of weeks now it feels like. there are some pretty high expectations on this. what is your plan and what are you planning on laying out for a goal for the party when you speak a little later this afternoon? >> what we're going to be talking about, becky, is really how do we help make life work again for more people? you know, there's a lot of challenging issues before us here in this country. obviously the fiscal debate has
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been dominant over the last couple months, if not years. and hopefully we're going to see a way to work to the to resolve those things. but you know, people are hurting out there right now. i was yesterday in a school here in the district of columbia. that is offering some real hope to inner city kids and their families who just want a safe place to learn with quality teachers and a fair shot at getting a good education. you know, there are a lot of folks in that instance that really we need to start helping. you know, there are some other issues that face working parents every single day. they've got to face the rising cost of health care, the prospects of losing a job. how are they going to support their family? these are the kinds of things that i'll be talking about today at aei to fry and make life work again for more people. >> you know, leader, is this a situation where you feel like you have to explain how your policies actually play out on american families? this sounds like the kinder, gentler gop. because when people start hearing all this talk about budget cutting, sometimes their
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eyes glaze over because it's just numbers. and you're probably in a situation where you've gotten a lot of pressure from the president who has said this is not the way the american people want to go. is this a plan to try and take back that debate? >> i do think there are some lessons to be learned from the last election. and i think that we have been steadfast in our commitment to the principles of limited government and free enterprise and faith in the individual, accountability in government. but somehow i believe that we've got to finish or complete the sentence, if you will. we've got to democrat trait why we're for the things that we're for. just as i spoke at the school yesterday, i'm a parent. i have three college-age kids. one that's now in the workforce. i understand what parents are going through. and what we need to do to try and help relieve the stress and put them back in the drivers seat and grow this economy. that's the reason i believe we need to go in this direction. i'll be talking about more policy proposals to help folks, help seniors, help working
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people, and those who are out of work. >> could you finish the sentence for us this morning, leader cantor, how you would propose to finish one that would be different, for example, from how it has been finished in the past, say on issues of entitlement or issues of unemployment insurance? what would be different under the way you're talking about the party now? >> again it is about demonstrating why we're doing what we're doing. we have constantly, for the last several years, we've talked a lot about it on this show. of the need for fiscal discipline, to manage down the debt and deficit. to put a plan in place. it's not just because we want to send a signal to the markets that washington's getting its act together. that's true. and that's a good result. but, it really is to help people. we don't want to see interest rates go up and the need for higher taxes. we don't want to see burden laid on the families, and individuals just coming out of school or seniors. we're trying to put us on a path to a growing economy, where
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there's more opportunity. >> but eric, you're still in a position of trying to sugarcoat a position of telling people that they are going to be getting less. that you're not going to make the same loans available, that this is a -- this is something that the president campaigned on very successfully. it's that situation. it's the immigration situation. are these different positions or this is just a new way of saying the same thing? >> look. what we're saying is our policies are the best path forward to help people in their lives. and the conservative principles of not spending money you don't have, of making sure that you put in place a path to opportunity for all people those are the kinds of things that can make life better again. that's what we're trying to do here, becky is we're trying to say, look, we can't keep spending a trillion dollars. i think most people know that, when you don't have it. and so the policies that we've got to focus on are those that are right before people.
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the challenges that people wake up to every single day, we've got a plan to help make their life work again. >> leader cantor, this is nouriel roubini. i have a question. suppose that the democrats were to accept again plan "a" that was $1 trillion of spending cuts within discretionary and entitlement in exchange for a trillion dollars of tax revenue increases, including the 650 was already agreed on january first. would that be acceptable to you, if the white house and the democrats would accept that for example, speaking about a promise? it's $2 trillion deficit reduction. >> i enjoyed talking to you a few weeks ago. i think that, you know, the purpose here is we can't keep digging the hole deeper. and that's why any time there is discussion of increasing the tax burden on working people in this country, it frightens me the way it frightens working parents, working individuals out there. and what they're looking for us to do is to actually fix the
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problem so we're not asking them to pay more money in as if we're putting their good money after bad because we wouldn't fix the problem. it's how we are going to address the problem. fix it once and for all. let's put us on a path to managing down the debt and deficit. that's what we're for. >> representative cantor -- i'm sorry. i'm sorry to interrupt. i just want to understand, though, is there a new environment there washington now? because we've been talking about the perception that you and the democrats and the president are working to the better. would you characterize it that way or not? >> well, i certainly hope so. you know, again, and the difficulty in working with the president thus far has been that he's not demonstrated a commitment to try to do something about the out-of-control spending. and we know it's all connected to the entitlement growth in this country, and it seems as if he's not willing to tackle that. we remain committed to working
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with him, and i hope that he can lead. you know, listen, i know that our international allies are looking for america to get its fiscal house in order so that they can see a better day in their country. we've got folks here at home that we want to help. and that's why we're taking the positions that we do. and today, i want to talk about how we can help folks see a better path to a bretter future and that's through innovative and solid proposals to improve prospects for innovation and growth in this economy. >> eric do you consider this, though, a pivot for you and sort of going to andy's point i'm looking at the front page of "the new york times" a week and a half ago after you got back from davos, gop cantor looking past politics of debt. one quote said we're in a town run by democrats and we cannot win the hearts and minds of americans if we're just talking about numbers day in and day out. how much sort of goes to becky's question, how much of this is about sort of just reshaping the perception but that the
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underlying issues are still the same? >> well, the underlying issues are we've got certainly a real problem macro, fiscal macro problem in this country. we know that. that hasn't changed. talking about numbers is -- has been our way in the past of saying, hey, we want to do something about it. what i want to talk about is the impact on working people. the impact on so many people out of work. that is the substance of the speech today. how we go about helping make life work for them again. how we can come together, really set aside differences that have been so prominent over the last couple of years, and say, you know what? let's all do this for the good of the country, for the good of the markets, so we can grow. >> eric, nouriel has one last question. >> do you think it's likely we're going to go first into the sequester. secondly if the democrats were to accept significant spending cuts would you agree maybe without changing tax rates, changing reduction and having some additional revenue should be part of the solution? i know nobody likes taxes but at
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some point you have to compromise in the middle. are you willing to go to that compromise or not? >> well, first of all, yes, i think a sequester is here. the president has been frankly absent from this discussion. i hope he comes to the table, and joins us. we have made several attempts, and passed legislation to try and replace those cuts with more appropriate cuts, frankly, that will achieve greater fiscal balance -- greater fiscal effect, and yet there's been no -- no movement at all on the part of the president or the senate to say, hey, we want to join you in doing this. so we've got to get our act together. i think the country is waiting for us to do so. and just by saying we'll compromise, you know, there's already been $650 billion of tax hikes put into effect after the first of the year. the president's gotten his revenue. we've got to do something about the real problem, and that is that growth and entitlements that will end up moving this
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country closer to bankruptcy if we don't do something about it. but the point is, that affects people. that affects moms and dads. that affects young people and old people. and we ought to get a handle on it if, for nothing else, to help folks in terms of seeing a brighter future and so their life can work again. >> leader cantor, thank you very much for your time. we will be watching that speech later this afternoon, as well. >> thank you. >> when we come back, we've got some stocks you need to watch at the opening of trading. and at the top of the hour, one of wall street's most respected long-term investors. buy and hold, that's the name of his name. baron capital chairman and ceo ron baron will be our special guest. >> this friday "squawk box" hits the green. we are live from pebble beach and the at&t pro am with special guest host former yahoo! ceo and one of the most powerful women in business, carol bartz joins us for all three hours.
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coming up squawk market master, and ron baron tells us why he thinks it's not too late to get in on the stock market rally. tomorrow a special one-hour roundtable with men who move markets and one of the most outspoken business leaders on the debt crisis. blair ephron, evercore partner
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roger altman, avenue capital ceo marc hasry and honeywell chairman and ceo david cote. they all talk market contributions and the future of america. a one-hour special presentation at 7:00 eastern and it's only, only i tell you on "squawk box."
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the dow pulling back from the mile stone 14,000 level. can bulls shake off european fears and get the rally back on track? >> times of market uncertainty we turn to our squawk market masters. ron baron and find out where they're putting billions of dollars to work. >> it's tuesday, february 5th. the third hour of "squawk box" begins right now. welcome back to "squawk box" everyone. we're here on cnbc, first in business worldwide i'm becky quick along with andrew ross sorkin and steve liesman. we've been watching u.s. futures as the equity futures at this hour and you're going to see after the big pullback yesterday you are starting to see some big gains today. dow futures up by 90 points. s&p up by over 9 points.
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of course this is all coming after yesterday's pullbacks where stocks had their worst day of the year. earlier today we spoke to jim o'neil of goldman sachs asset management about profit taking after january's wrap -- >> it's clear evidence of things doing better economically around the world. i think the underlying momentum is for the year still very favorable. but, could we correct further? quite easily. >> we have a huge lineup on this hour. with us on set, nouriel roubini, chairman of roubini global economics and andier isser with, plus we'll round out the market with baron capital chairman and ceo ron baron and jim mccaulk ran. >> among the stories we're following this morning the government filing a civil lawsuit against standard & poor's and its parent company mcgraw-hill saying that fees, market share and profits
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improperly influenced s&p's ratings criteria during the financial crisis. s&p has already responded to the lawsuit even before it was filed saying it is entirely without merit. we had a big debate about this suit on the set just an hour ago. also boeing asking the faa for permission to resume, now this is only to resume test flights of its grounded 787 jet. it wants to test the batteries and other components in the flight, since certain testing conditions can't be simulated apparently on the ground. now the faa is evaluating boeing's request, so doesn't mean the planes are going in the air, just means they're going to test them in the air. finally energy giant bp reporting this morning fourth quarter profit, beating analyst expectations. ceo bob dudley sat down with cnbc's julia chatterly and said that 2014 is going to be the year the company's fortunes might turn around. >> 2014 is when things really start moving because in 2013 we still have about 150,000 barrels of day of oil divestments to
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come. underlying we'll have production growth in 2013 but we're still shrinking down from the tail of those divestments. >> we're kicking off the hour with one of the best-known names in the buy and hold investing arena. joining us is ron baron, chairman and ceo of baron capital which has $17.9 billion in assets under management. and ron, it's great to see you this morning. >> great to see you, too, becky. sort of. i mean it's always nice to talk to you. except i don't really see you. you see me. >> well, i get to see you. we are looking at the situation. you've been watching the markets for a long time. and you started telling us, i believe, a couple of years ago, that this was going to be one of the best periods to start investing in stocks that you've seen since the beginning of your career. that this is something that doesn't happen very often, and that people should get into it. sure enough, we've watched the dow go back above 14,000. but that has a lot of people thinking we've come an awful long way in an awful short period of time.
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are you still feeling that positive about stocks? or have you changed your mind given these gains? >> well, to put it in perspective, 14,000 is where we were when the dow jones in 2007. so it's flat for five years. and as you go back further than that, and you look to 1999, you'll see that for the last 13 years, it happens to be the worst period of time in the financial history of the united states. the market is up 20% or 30%, companies have gone up in earnings 2.5 times. the reason that has happened is because we started off 1999, at 32 times earnings, not 13 times earnings. so if you go back 100 years, 200 years, 50 years the stock market normally trades between 10 and 20 times. and the median is 15.15. it's 32. that's the highest it's ever been. the market is now at an attra attractive level compared to its median for a very long period of time. businesses are doing better. the economy is getting stronger.
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and you have a couple headwinds. of course you have taxes and deleveraging that's taking place. but also you have very big positives. you have natural gas, which energy costs are lower. so natural gas is one-third of the price it is in the rest of the world. that makes that the equivalent of $3.5 ncf the equivalent of $21 or $22 a barrel oil which makes the price of electricity very low, and electricity costs in the united states are half of what they are in the rest of the world. that's extraordinarily stimulative. we have housing, which is picking up very sharply. in fact in november, prices were up 5.5%. that's a big positive. cars went from 17 million cars a year to 10 million. last year was 14 on the way to 15. and health care, you're actually seeing good, positive growth in jobs there, where you've gone from 11% of our workforce to 11.8. you have a lot of positives. and the other thing i think is very interesting is that the stock market is extrickbly linked to how the economy does. and if you go back a very long
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period of time, go back 50 years, go back to 1960 to president kennedy when he was president, and you see the gdp then was 509 billion i think it was. and now it's 15.8 trillion. so the economy in that period of time has grown 6.8% a year. the stock market in that same period of time has grown 6.1% a year. it's grown less because we've had such a tough last 13 years. but normally grow very close together. now i thought steve liesman was going to be on -- >> he is. >> i looked up on google last night. steve? i brought you a chart. >> oh, thank you. >> just to show you they're very close together. >> you don't have to tell me that, man. i'm all over that. i keep telling them. what is it like 70% or 80% of the stock market's movement is linked to gdp and the economy? the other 20% is specific individual stocks, right? >> well i'm a stock guy. so i happen to think it's more than that. but the stock market itself --
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that's exactly right. the stock market is very close to how the economy grows, and the economy's growing nicely. the other thing i would keep reading about, i listened to nur yule this morning talking about 1.5% growth or 2% growth. i hear everybody say that. that's not the growth. the growth is 6% or 7%. so last year for example the growth in our economy was 6.8%. 15.8 trillion the year before was 14.8 trillion. so what people keep forgetting, they give you real growth, but the nominal growth is the number that is affecting everyone and the stock market, the reason stocks are interesting is they're giving you a hedge against inflation. so inflation is 4% or 5% a year. not 2%. that's how come you have 15.8%, 15.8 trillion dollar gdp to 14.8 trillion a year ago. stocks are the only real hedge against that. so you can invest in vanguard fund and that's the return you get. >> ron it's sorkin. nouriel is still here so let's get your perspective on this. >> i have a question you know the growth rate of the economy was about 3%.
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some people now worry closer to 2.5% or less. we have public debt as a share of gdp an all-time high. we have painful deleveraging, we're underinvested in fiscal capital, human capital, infrastructure that is a digital divide in this economy. many positives. but suppose the potential growth of the economy somehow slows down. talking about a massive cycle or bull market might be too early. we have plenty of head winds, right? >> all i hear about and read in newspapers and listen to and watch on television are people describing exactly the events and circumstances that you've just spoken about. but, in my mind, no one i've ever known in my history in my career of 42, 43 years has been able to predict what the stock market is going to do. not a single person. so in my mind i sort of ignore it. i just think that over the long-term the stock market is
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going to grow 7% a year and the economy is going to grow 7% a year roughly plus stock market you get dividends, economy you don't. my feeling is that so right now people are saying is it 14,000? is it too late? 14,000 i'm thinking in ten years it's going to be 30,000. in 20 years it's going to be 50,000 or 60,000. so i don't really think about, you know, 14,000 to 15,000. 15 to 16. i think about stocks being a great inflation hedge against a great hedge against inflation. in fact the other thing is that i also don't believe so much in the predictions of economists, and on the other hand, i do believe in predictions of fortune cookies. and so i just got a fortune cookie the other day and it said, all the effort you're making, all could pay off. that's what i believe in. >> well, that's what i want to ask about. the -- >> wow. >> i like that. >> i like fortune cookies. >> i think that should be the now ron baron ad.
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>> i want to ask about multiples. about a 13 multiple, the average you said is 15. we've been in a range of 10 to 20. so talk about the expansion of the multiple. how much people are going to be willing to pay for future earnings streams in an environment of, say, could be stand or even declining earnings. would that multiple expansion make up for and more any sort of decline in earnings? >> you know what? we've been through civil wars. we've been through world wars. we've been through depressions, deflations, inflations, and yet the stock market has grown 7% a year for 100 years, 200 years. and so do i think it's going to change over the next, you know, 20 years or 30 years? no. and just every now and then you gothes periods of time where not much happens. it happens i started my career in 1970 between 1966 and 1982 the stock market traded between 1,000 and 600.
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and then in march of 1982 we started baron capital the dow was 880 and in august that year it went to 1,000 and went on to 14,000. what i think is going to happen is the same sort of thing is going to happen in the next 10 years, maybe 20 years. it's going to happen through everyone who works with, in my firm, and they're going to have the same opportunities i had in 1980s and 1990s. they're about to have it. >> ron, in the more immediate term, though, when steve talks about multiple expansion, what is a number that you think is reasonable, and by the way, what's a number that isn't reasonable? is there a p/e at which you say to yourself, you know what? the market's overbought? >> well, the norm has been 10 to 20 times. and 15.5 has been the median. go back for all those years. 50 years, 100 years. so i think 15.5 is a normal time. if you get to 32 times that's extraordinarily expensive, and you get to six times, that's extraordinarily cheap. right now you're 13 times. >> you talk about ignoring the clutter and ignoring everyone
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talking about prognostications and all that. still you must move stocks around from various sectors. groups. what are you thinking about doing right now? >> the same i always do. the turnover in baron growth fund which is our largest fund, 6.2 billion, is 15 -- 13% a year. own stocks an average seven years. here in, you know, you think about what i'm doing, all i do is look at this and say you know there are a couple of ipos. what i really are interested in, not so much the stock market. i'm interested in companies. i'm an investor. >> what companies? >> so the past year, there have been a couple of ipos that are interesting to me. carlyle was one. manchester united was another. and carlyle came out and it was a ice cold deal. in fact the stock went from 22 to 21 in that period of time we bought 4.5 million shares which is what i'm allowed to buy, 9.9%, what we restrict ourselves to, and now the stock is 13st.
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31. 9 reason we bought it is i know something about mutual fund management companies because i own one and they're worth something on the range of, you know, five times revenues, ten times cash flow. 12 times cash flow. and if you looked at carlyle, when it came out, it was valued as though just take the management fees, that was the value being placed on the company. $21, $22 a share. people had lost money in every single one of this alternative investment managers that had been public. that's why we thought it was interesting. then you got that management fee in addition to that you got the carried interest and you got the book value and the accrued carried interest for free. and that made it worth 50 and we were buying it at $22. i thought that was interesting. manchester united, you know, saw the brooklyn -- i'm still on the brooklyn dodgers stage. i saw the dodgers trade for 2.5 billion dollars, a los angeles dodgers for 2.5 billion dollars and here manchester united comes public and nobody wants to invest in companies, supposed to
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go public at 18. goes public at 14. falls from 14 to 12. soros unbeknowns to us and we were the two major buyers between 14 and 12 and i think we bought somewhere around 4 million shares and the stock is now 16 or 17 and the thing was really interesting about it, it was being valued for less than $2 billion. and then so the dodgers were 2.5. this is worth 2. this had 500 million people around the world watching this sport, the most popular sport in the world, iconic brand. what was interesting about it is they thought they were going to go from $400 million to $1 billion in revenues and make $400 million a year in profits over the next six, seven, eight years. as they reprised -- it's a media property. and media properties are interesting for sports because they get people to watch the shows. oh, and by the way, talk about -- >> wait, wait, wait, before you do. can you stay with us for a moment, and indulge us for just a moment, do a quick commercial break and come back because i would like to hear about more stocks?
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>> okay. >> stay with us for one moment. we'll be back. steve? >> thank you, becky. another squawk market master will join us to break down economic trends. we'll tall to jim mckaugen and as we head to break check out the "squawk" box market indicators. ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade.
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welcome back to "squawk box." futures had been higher but they're still up there about a 75-point open on the dow. about an 8-point open on the s&p and 13 on the nasdaq plus or minus. i think i saw about 99 or 100 earlier this morning on the dow. it's come off just a little bit. we're watching shares of mastercard this morning. the company has doubled its quarterly dividend to 60 cents per share. it's also announced a new $2 billion share of repurchase program. maybe more to come and we're waiting on another deal. >> waiting on dell. >> nothing on dell. no dell. >> no dell yet. i understand they were working on trying to dot some is and ts on the agreement. >> i heard 7:30. >> i thought you said 6:30. >> no deal yet. we will see where things stand. but that appeared at least as of last night to be getting closer.
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let's get back to our conversation with ron baron. it's great to see you again. and we were talking about stocks. before we go there i want to repeat this for a second. in the last segment that we talked to you, you didn't just say you thought the dow was going to 20,000. you said it could be going to 30,000 and then 50,000. we have a lot of people who come on and talk about, used to talk about 15,000 people laughed. then 20,000 people think it's crazy. what's your timing like when you say you think it's going directionally i understand. but is that 10, 20, 30 years from now? >> i think as i mentioned before i'm expecting 7% average growth for extended period of time since we're below where stocks normally trade. and the economy is growing about 7% a year. including inflation. how long is that going to take? if you grow 7% a year that means you double your money every ten years. that means if the stock market is 14,000 now, it could be 28,000 in ten years. and it could be 50,000 or 60,000
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in 20 years. >> that might be considered what was the old normal before we got to the new normal, so is this the new new normal? do you really think that 7% is realistic given all of the shocks to the system and other things -- >> i would say, you know, growth used to be 3%, and normal gdp used to grow around 7%. now growth is 2.5% and inflation officially measured is 2%. so nominal gdp growth is more like 4.5%. so there's been a change compared to the past. no? >> well, as i said before, we've been through world wars, we've been through depressions, deflations, civil wars. and yet for 00 years we've been average 7% a year. if you want to make different projections that's fine. i'm thinking that the market in our economy is going to be similar to the way it's been for the past 200 years and we have a very bold, exciting country in
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which to live, a warren buffett says that i hate to use that name and use that as a crutch but he says that our living standards will improve seven times over the next 100 years. and as they have in the past 100 years -- >> ron at some point things do change. look at japan, look at england. warren buffett said newspapers were great businesses. then they weren't great businesses. i'm not suggesting the united states is heading into any sort of long, secular decline but you can't just keep saying it's going to go up because it's always gone up, right? >> and by the way, you know in the long run -- >> i'm saying i think we have -- >> i joined the board of we'll cornell last week and i went to a presentation by the doctors, the research doctors there, on monday i guess it was and they were explaining the advances in medicine that are being achieved and the life expectancy in 1900
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was 40 years old in the united states. it's now 77. and in the next, i don't remember, 70, 80 years it's going to be over 100. one-third of the people who are born today are going to live to over 100. so there are changes, technology is exploeding. the opportunities that are available. i would rather talk about businesses than make comments. >> ron, i think you're making a really good point, i think the art of the new normal is a new normal pessimism that some of the things that worked in the past, technological progress, productivity increases those are gone and i kind of support your thinking that there's no reason to believe that. the raised that we have raised per capita income since the dawn of the revolution, i think they remain in place. we've been through -- >> -- talked about natural gas -- growth point. >> he made a great point.
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you may have lower gdp over time here but the idea of technological progress leading to better living standards -- >> ron, before we -- go ahead. >> so anyway let's get away from that. you can't predict it. i think it's going to happen. but if people are pessimistic and they don't think that's a good place to have their money -- >> let's go companies -- >> but one more thing. cash in my mind is what you use to buy and sell things. it's not something transactions. it's not to store money. storing value is not a good thing because the value of your money goes down 4% or 5% every year. it's not a good thing to leave your money in cash. it's a good thing to invest in something. you want to invest in real estate, in your house, in stocks, in something. i happen to choose stocks in which to invest, commodities. and i'm investing in stocks. and so i have my business, i have, you know, stocks, and i have homes.
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>> ron, give us -- give us one or two more names before we've got to run. >> let me be real fast. becky, has a generator in her home and therefore winter storms are -- so winter storms she still has electricity. so the superdome -- the super bowl was played in new orleans, and we lost electricity there and they almost couldn't finish the game until they got it up powered and of course it was in becky's backyard if it was big enough and she had enough generators it would be okay. enter ji has been spending $100 million a year on transmission which is an inadequate number which is similar to the company that we've invested in itc holdings which also was spending $100 million a year until henry travis acquired them and ultimately brought it to the public and we've been the largest shareholder in that company for the past four or five years since it's been public and we've about tripled our money so far.
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they were spending $100 million a year. they're spending $800 million a year -- >> what's the company? itc? >> itc holdings. >> we're showing entergy but you were making a point -- >> they have 15 -- they own a transmission and itc is about to merge with it and that's 15,000 miles of wire also compared to our 15,000, when they put them together that guy's been spending 100 million dollars a year expenditure is going to go up and we've got 17%, 18% growth going forward for a number of years. that's going to give us ten years of growth. and if we don't get the acquisition it's going to be in four or five years we've got to double and if we do get it we've got two doubles over the next ten years. that's one example. just electricity transmission, we need it so we use less energy, we can be more efficient about providing it and we don't have blackouts and brownouts and people can manufacture and go to ball games without being afraid. let me give you one other idea. that 100 years ago, if you had a factory in vermont and you
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wanted to get your goods to market what did you do? you put it on a truck or some fortunate guys built a railroad. we can't build railroads anymore because you can't get right of ways. >> ron -- >> -- build a -- that's genesee wyoming. and you can buy that in the stock market for 200,000 dollars a mile it costs a million dollars a mile we own 4 million shares, five or six or seven years ago at 17 or 18 dollars a share trading at 50 this past summer. they decided they were going to buy rail the second biggest competitor to them. they needed financing for it. carlyle said we'll invest 850 million dollars at $58 a share and now the stock is 85. unique businesses competitive advantage that's what we invest in and what we've been successful over the long-term, investing in these businesses because they have big growth opportunities for managed by exceptional people. >> on the entergy point, they said it wasn't their fault that
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they were supplying power the whole time there was something internally at the super bowl or at the superdome we should say. and i know you were just making that point but before we get a call from them or anybody else they have made it clear it was not something that happened on their end of this. >> i agree. and if it's not entergy then we've got generec. >> we thank you for your perspective. i hope your predictions are correct. and nouriel and of course andy are going to stick around. so thank you. >> i would say one more thing before i go. my wife made me dress like this today. i normally would wear a sweater but she said you got to show becky respect. >> good call by judy. i approve. when we come back, president obama meeting with 12 ceos today. we will tell you which chief executives got the invite and what issues they'll be tackling. also jim mccaugan coming up on where his company is investing over $280 billion. a talking car. but i'll tell you what impresses me. a talking train.
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welcome back to "squawk box" everyone. among the stories that we are following this morning, president obama is seeking counsel on immigration and deficit reduction from chief executives from 12 companies today. among the ceos meeting with the president, goldman sachs' lloyd blankfein, yahoo's marissa mayer. also blackberry ceo thorsten heins tells the associated press
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that he is disappointed that the new handsets will not be released in the united states until mid-march. he's not the only one but he does say that early data shows sales in the uk market are above forecast. heins says the u.s. delay is because of a more rigid phone testing system in the u.s. >> we've had about a 2% ten year yield. rick looks like he is standing by. i'm going to throw something out then i'm going to duck, okay? nouriel roubini on set this morning says the fiscal stimulus was absolutely necessary. the united states has done a better job than europe at austerity -- i'm sorry at keeping the economy afloat, the fed doing a better job than the ecb. so i just thought i'd get your reaction and then i'm going to kind of duck out of the way. go ahead, rick. >> well that's his neville chamberlain moment, i guess. what else can i say? i don't want to revisit the past. let's talk about the future here. rick do you think the united states prospects right now,
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given what current policy are, brighter, gloomier, the same as europe's right now? >> oh, i think that our prospects are brighter. but i think the spread between less bright and bright continues to narrow. so, yes, we have advantage. five years ago we had a much bigger advantage. 20 years ago we had a huge advantage. so i think that the issue here is, is that when we have our first friday and we have the whole gang of well educated economists right there with you, steve, the dynamic is, well you know, 1.5%, 2% growth, way better than europe, but not good enough. it's okay. it's not okay at all. 2.4 trillion every year is spent on a variety of programs that don't include education, discretionary spending, which means every dot, every last dollar of revenue is used up and 1 to 1.5 trillion that we need for other issues is all borrowed money. we need a budget, a plan and we
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need to widen the spreadeurope. we don't want to be europe. we never want to be europe. they're a great ally. >> nouriel roubini is here. >> rick, i have been the one concerned about u.s. economic growth but if i compare the u.s. to europe and japan demographic is much better than u.s. than europe and japan. productivity growth is better because in all the indices of the future, we're ahead of europe and japan. we look at value tech, key technologies, popular technologies. even defense technologies. so while in the short-term i'm worried about the deficit, about the gridlock in congress, look at the medium and long-term i think the u.s. both on demographics and pro-tension growth of productivity given the investment in new technology and the product cycle is going to do better roughly speaking than europe and japan. wouldn't you agree on that and therefore our fiscal problem by the way is better demographics and better growth serious but manageab manageable. if you do 3% gdp fiscal adjustment we're going to
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stabilize the current ratio. we can do it, right? >> i think we could do it. but the problem is mr. roubini i cannot be satisfied with something like i'm the san francisco 49ers and i'm better than the bears and i'm better than green bay. all true. but you're not in first place. that's all that matters. period. we need to get back to what made us great with respect to business, innovation, entrepreneurialism, individualism, you know, angel financing all of those things we need to do a better job. today there's a great article doctor in the paper about how some of the new issues for marketing to the private sector are going to be a great thing down the road. and i agree with that. but isn't that the issue? why do we need to get around what our government puts in front of us, why do we need to be handicapped by the people that lead us? those are the issues that ultimately make us either
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similar or dissimilar to europe and we node to get to work on that. >> rick, i completely agree and that's a great place to leave it. thanks, rick, for your thoughts this morning. >> okay. coming up, stocks on the move ahead of the opening bell. we're going to bring you some names to watch. and still ahead, squawk market master jim mccaughan. his take on jobs, housing and the economy. we head to a break. take a look at u.s. equity futures. may not be with fidelity,ves but we can still help you see your big picture. with the fidelity guided portfolio summary, you choose which accounts to track and use fidelity's analytics to spot trends, gain insights, and figure out what you want to do next. all in one place. i'm meredith stoddard and i helped create the fidelity guided portfolio summary. it's one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account.
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let's take a look at some stocks to watch this morning. shares of zynga trading higher after bank of america merrill lynch upgraded the stock to buy. and bp reporting an 80% drop in quarterly profit. mostly due to payouts from the 2010 gulf oil spill but q4 results still beating those estimates.
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finally shares of yum brands under some pressure. the company warning it expects 2013 earnings to shrink as it struggles to manage a food safety scare in china. the fast food giant sees no return to growth in the restaurant sales there until the fourth quarter. united health care upgraded to buy goldman sachs. the firm says valuations are low in the industry, in general across the board, and unh is in position to outperform its health peers based on superior execution. at least that's what it's saying. and cardinal help also posting quarterly earnings of 93 cents per share exitems. cardinal says new customer wins are helping offset a revenue deklien in the company's pharmaceutical segment. jcpenney filing a lawsuit asking a judge to block bond holders from declaring a default on nearly $3 billion in debt. a bond holder group claims the retailer violated its bond agreement by granting a lien on its inventory and that the debt can now be declared payable in
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less than three months. and i believe -- >> story you didn't read. >> it hasn't happened yet. >> a story you promised us at 6:00 this morning. you can't deliver a deal. >> he didn't promise. he said simply -- >> he promised this tell deal. >> he told me to get excited. >> the boards were meeting last night. people i talked to literally this morning working on the press release. >> and there's no deal. >> it's 8:40 and there's no deal. >> you give it to the other show i'm going to be angry at you. >> it won't be my fault if it happens later. >> aren't you the one telling them -- >> oh, i already talked to them about being on "squawk" hours. they know. they know. >> power. that's real power. >> we'll see how powerful it really is. in the meantime, as we wait for that dell deal, we're going to talk to strategist session with our squawk market master of the morning, principle global investor jim mccaughan on the economy, the january rally andrew serwer and nouriel
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roubini will join in that. >> bad day in the markets? need to turn things around? start fresh every weekday morning at 6:00 a.m. eastern with up-to-the minute news on the economy, earnings, and poll kicks. get out of bed, watch "squawk box." and get out of the red.
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the equity market suffering the worst decline of 2013 yesterday. the dow falling away from 14,000 and the s&p 500 retreating from 1500. is this just part of a healthy pause or is there something more that's happening here? joining us right now is squawk master jim mccaughan of principal global investors. a company that has 281.5 billion dollars under management as the start of the new year. and, jim, what do you think what is happening here? is this something where people got a little nervous but were plowing straight ahead? or is this a time you stop and say wait a second? >> becky markets don't go straight up. this is just a natural pause in a basically still pretty healthy market. the reason the u.s. has done better than europe and japan is not government policy. the reason the u.s. is doing relatively better is the advantages of the u.s. private sector. so its innovation and
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productivity. it's cheap and abundant energy. and it's the fact that the housing market is now at least clearing and shut be a positive contributor to growth in 2013. for all those reasons i would expect the u.s. to continue to do better than other developed countries and that should set a fairly positive tone for the u.s. market for the rest of the year. >> we have several people including ron baron, market strategists and money managers, who are saying this is a time for strong growth ahead. but we also hear a lot of complaints about things that could really gum up the works. nouriel roubini is here and we've been talking about potential scenarios. he said you could have a 10% to 20% chance of worst case probability if a series of events happen. what do you do to plan for events like that or do you just simply ignore it and run ahead with things at this point? >> yeah, the only answer to that risk, and that's really the tail risk, the only answer is a
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degree of diversification because, not everything will collapse at the same time and we've seen this before when equity markets and credit markets are bad you tend to see some resilience in high quality bonds. a diversified portfolio will tend to smooth this out. there's not really much else you can do. other than use these tail risk setbacks as a buying opportunity. that was the right thing to do in early 2009. i think if nouriel's tail risk happens, then the right thing to do will be to look through it, and treat it as a buying opportunity. >> nouriel, you say -- go ahead. >> you could be buying opportunity as a temporary shock. but look at what happened yesterday. you have a beginning of new political risk in the eurozone, maybe divided government in italy, a political scandal in spain, and the markets correct 1%. now the risk of a breakup of the eurozone are lower but this economy is in a recession, the debts are not sustained, lost competitiveness and some of the
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countries are in depression. you have problems in italy, in spain, in greece and you have elections also in germany. ever underestimated the eurozone could surprise us on the downside with the recession continuing and then leading to social and political instability, and it takes just literally noise in europe, 1% correction in the market let alone if eurozone were to become worse throughout the year. so that's a risk, right, not just a temporary one? >> there is a risk there, but the likelihood in my outlook is that europe stays in or close to recession. the eurozone is not a competitive economy in the sense that i described for the u.s. so it will stay in recession most likely. the political will is such that the breakup, the worst case, is very unlikely to happen. we've seen that with ecb policy. we've seen germany acquiescing and moves to keep the weaker countries in the euro. i believe politically that will carry on. and that europe is not a good place to invest.
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but the tail risk is a pretty low probability for the next year or so. >> jim, during commercial break earlier nouriel and i were talking about some of the international opportunities that you've been seeing like the philippines and chile. how much of your portfolio right now is in emerging markets versus developed markets, and then inside the u.s., outside of the u.s.? >> yeah. it depends on the investor. because emerging markets are in our view very attractive. but they're also one has to recognize volatile. so an investor with a relatively short time span has less in emerging markets than one who can really look through it to the long-term. but i would say, compared with the opportunities in emerging markets, most investors based in the u.s. are pitifully low in their allocation. and 20%, 30%, 40% of your equities in emerging markets is not too outlandish given the importance of those economies. and given the likely growth and particularly the growth of the middle class and how that will power our economic prosperity.
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>> yeah, i wouldn't lump all emerging markets together. there are some more success stories and weaker ones. for the last few years the greeks have been overhyped, india, russia and china all of them moving towards state capitalism and actually going to slow potential growth. i think some of the success stories in latin america is not brazil but chile or colombia. or if you're looking in asia, comparing to chile, china and india, philippines look like better story. not lump together all emerging markets and look at actually some of those not on the radar screens today. >> i certainly wouldn't advocate an index fund in emerging markets. you have to be selective. i prefer china, brazil and colombia to russia or argentina. but, hey, you know, the global emerging is still an interesting area. sorry, steve. >> jim, how critical is the fed being wide up to europe investment outlook and what's the chance that you think they
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end this year? >> i think the fed is, you know, pretty important in the sense that it's following the global orthodoxy of central bank policy which is very easy liquidity in the banking system. and of course, as you know, steve that isn't leading at the moment to any material increase in the money supply. so inflation is not really a constraint. i think the fed's guidance that they've given that they will slow down and cease the bond buying when unemployment comes down down is a reasonably comforting feature. when the fed closes the faucet of liquidity, it will be because of success in the economy, rather than to create a new recession. so i'm fairly -- i view this with acronym ti. >> we'll leet it there. becky? >> jim, thank you. we appreciate you joining us. >> thank you, becky. >> coming up, we'll head down to the new york stock exchange for jim cramer's stocks to watch. and don't miss "squawk box"
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welcome back to "squawk
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box." jim cramer and david faber joining us now. david, we've been waiting all morning, i was told backstage earlier, 7:30 we were going to get a press release. we've been talking to people during the show all morning about the work they seem to be doing on this, yet no deal yet. what do you know? >> i'm with you, as is often the case, andrew. i'll make a prediction. we'll get a press release next 10, 15 minutes. >> they're going on "squawk on the street" time, not "squawk" time. >> there is an opening bell, maybe they're aware of that, i don't know. i think we'll get the dell deal momentarily. let's not forget the potentially huge deal, and i'm also hearing a report more on "squawk on the street," this could get announced as soon as today. >> this is a huge deal. you're starting to come back to the world that maybe this is 2013 is the deal year. >> it might be. i can tell you just having known a bit about what's gone on here,
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they've been talking off and on since the summer. but it would be a very large deal. $10 billion equity value. they have a lot of debt. keep an eye on vmed. we'll be talking about it during the show. >> you've got floyd abrams coming up representing s&p in the next hour. your thoughts on the conspiracy theory inside s&p that this is payback for the downgrade over the summer? >> yeah, you know, andrew, it is interesting, jim, moody's is not a part of this. there is at least some sort of -- people are wondering, why not. is it possible it could be political payback for the downgrade in the summer of 2011. >> this is just the first one. the stock was tanking yesterday. >> that seems to be the expectation on the market, becky. but i don't know. >> it's always e-mails. >> the e-mails, right? >> it's always the e-mails. >> steve, you had so many other investigating committees that
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came up with e-mails that are incriminating. read anything you want about moody's, it's just as bad for the fact pattern as the s&p. >> another case on the first amendment, why is this different? >> we'll ask floyd abrams. >> david, jim, we'll see you. i wish you good luck with the dell news, david. >> you still have five minutes. >> yeah, still have five minutes. >> when we come back, our guest hosts this morning will get the last word. "squawk" will be right back. tomorrow, a special edition of "squawk box." confronting america's debt crisis. honeywell ceo david cote, and mark lasry, and roger oldman, and blair ephram. the question to tackle, how do we grow from here. "squawk box" starts tomorrow at 6:00 a.m. eastern. i'm lorenzo.
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